How much oil does Saudi Arabia have?

Jun 30, 2006 02:00 AM

by Stefan Nicola

There are many reasons to doubt that Saudi Arabia, the world's biggest oil producer, can feed the globe's
ever-growing hunger for oil for as long as it claims, experts say.
"We don't know what the Saudi reserves are," said Jack Zagar, a former oil engineer with 30 years of experience in
the business. "All we have today is the Saudi Arabian word as to what they might be."

Zagar, who now works as an independent engineering consultant, spoke at a telephone conference hosted by the
Association for the Study of Peak Oil & Gas, a group founded by Colin Campbell, an oil expert researching global
reserves.
"We are not about to run out of oil, but we face the end of the first half of the age of oil... the peak of oil
production is imminent," Campbell said, speaking at the conference from his home in south-western Ireland.

The world's total level of production of about 84 mm barrels of conventional oil per day is about to "peak" and to
gradually decline, Campbell argues. Oilproduction has peaked in almost every major oil-producing nation on the
planet, starting with the United States in 1970.
"Much will depend on what comes out of (Saudi Arabia), but unfortunately, we don't exactly know the volumes, because
the data in that part of the world is so extremely unreliable," Campbell said.

International auditors do not have access to Saudi oil field data, which are kept a national secret. Saudi Arabia
claims to hold a quarter of the world's proven oil reserves, or some 260 bn barrels; the kingdom accounts for roughly
12 % of the world's oil production.
Saudi estimates are much more optimistic than the reality, Zagar said, adding that his best estimate for proven
reserves was significantly lower -- at 165 bn barrels. On loan from ExxonMobil, Zagar worked on some giant Saudi
Arabian oil fields in the late 1970s, and has researched their capabilities ever since.

"My contacts at Saudi Aramco tell me that they are under pressure to replace reserves depleted by production," he
said. The new, optimistic estimates are likely because of remapping old fields, he added. At the current production
rate of 10 mm bpd, according to Zagar's estimates, reserves will decline by 2025, 17 years earlier than with Saudi
figures, he said.
"That has drastic implications for the world's economy," he said.

Saudi Aramco Chief Executive Officer Abdallah Jum'ah, however, says that due to new projects, the maximum sustained
production capability could be increased to 12 mm bpd by 2009, a plan backed by Ali Naimi, Saudi oil minister. That
would push the decline date even closer, to 2020, he said.
"Two extra million bpd is a lot of oil," Zagar said, adding that the entire Nigerian oil industry currently produces
that much.

On a number of occasions, the Saudis have said they could boost production up to 18 bn barrels, but Zagar said while
that may be technically possible, it would not make much sense because such levels could only be kept up for a few
years. But the Saudis are trying everything they can to convince the world they can meet the ever-rising demand for
oil.
"The Saudi economy has not been developed beyond the oil industry," Zagar said, adding that a more pessimistic
outlook would alarm investors. "We should be very pessimistic on production forecasts. The Saudi oil industry will do
what's good for their people and their government."

Global consumption rises by nearly 2 % each year, and that growth may yet increase, given the economic development of
China and India. While the Saudi government has the goal of maintaining 1 mm to 2 mm bpd as a spare capacity for
future production increase or price regulation, high oil prices and the soaring demand in the past has used up those
spare volumes, Zagar said.
"The oil demand is quickly absorbing the spare capacity into its daily diet," he said, adding that the past two years
have seen a change in development: While it used to be OPEC controlling the oil price with its spare capacities, the
price is now controlled by the demand, and disruptions to supply (such as the Katrina hurricane in the United States,
which temporarily shut down refineries) sends prices up or down.

While much of the Saudi oil has already been sold, the kingdom said it expects to discover 200 bn barrels more in the
next two decades, 90 bn of which may be easily recovered; that data has been backed by a US Geological Survey study,
which expects a potential of 87 bn barrels of crude oil in Saudi Arabia (the same study lists an oil potential of 47
bn barrels for Greenland, but no wells have been drilled there).
The kingdom claims technological advances may even make room for additional recoveries from harder-to-work fields.

Zagar's estimates are much lower, at 30 bn barrels; he added that discovery of new oil fields has steadily declined
since the first well was drilled in the region, and major new finds are very unlikely.
"To meet the 200 bn barrels discovery in the next 20 years, they would have to find 10 bn barrels each year," Zagar
said. "However, the discovery rate over the last 20 years has been roughly 1.5 bn barrels per year." Saudi Arabia
cannot easily ramp up production because of personnel reasons, he said, arguing that it lacks the necessary
technology and qualified personnel.
"The oil industry works at full capacity, with a long backlog and a scarcity of technical people," he said.

Saudi Arabia is unlikely to boost the recovery rates of oil fields, generally at around 50 %, and that's not the
fault of the Saudis, he said.
"Saudi Aramco represents the best in class in terms of quality of fields and field operations," he said. "ExxonMobil
and BP could do no better." But nature may just limit them to less production than they claim, he said.

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